Another Merger? Another Failure?

(April 16, 2008) The CEO of Delta Airlines just announced merger plans with Northwest Airlines, which would create the world's largest airline. Touting "the combination is exactly right for all the constituencies," Richard Anderson did not exactly wow investors or analysts. In fact, stock prices immediately went down for both Delta and Northwest.

NW Pilots are not pleased and vowed to fight the deal, fearing lower pay than Delta pilots and the possibility of being shut out of choice assignments. Customers fear operational nightmares (higher prices, and ticket, flight and baggage problems). Mergers tend to create fewer flights and seat availability.

To answer skeptics, Richard Anderson says "the new Delta" plans no hub closures, assures more destinations and promises improved frequent-flier programs. The reality is that there have already been flight cuts at Delta and Northwest.

The annual savings of $1 billion will not be seen until 2012. Costs will continue to rise. Pilots will get raises.

Up to now and since 9/11, Delta can be applauded for surviving a bankruptcy, reduction of plane capacity and substantial debt and is currently positioned well in comparison to the rest of the "big airline" industry.

What hasn't been discussed is, not how the merger will be handled operationally and financially, but how the talent will be managed. No one is questioning how key people in key positions will be retained and made into a smooth running team. While the merged company works to smooth over the operational side of things, who will smooth over the problems when two distinct cultures come together? It appears that the top shareholders' and the pilots' issues have been discussed, but what about middle management/supervisors and the rank and file employees.

I suggest that this employee constituency will be what will potentially create the problems when customers demand good service and uninterrupted travel. If their concerns are not addressed and if they are not brought into the fold, the merger will lose most of its value. Cultural integration will be paramount.

Though the letter sent yesterday to all US-based Delta employees promised an integration committee made up of and including both Delta and Northwest representatives of all workgroups and future pay increases, the letter did not go beyond that. The letter should have:

1. Started with thanking all of the employees for their contributions during tough times, rather than thanking them at the end.

2. Discussed the vision for the merged airline and how the merger fit into that vision.

3. Discussing why it is pratically important to have the #1 Airline."

4. Emphasize what is in all of this for the employee (beyond promises of future pay increases).

5. Pointed out how their manager(s) will be prepared to effectively manage them and their career as part of the merger management strategy.

Most experts have blamed oil prices for the problems that set off this merger. Delta management suggests that the new company will be able to operate smoothly and efficiently to avoid operational issues. But the recent merger of US Airways and America West which was initially considered relatively smooth, has created ongoing performance problems including (reservation and ticket counter delays).

So, who is it a great deal for? How about Richard Anderson?

As with many mega-mergers, the promised synergies are not realized and a small group of people run away with compensation and bonuses that were promised to them either pre- or post-merger. Anybody want to bet on how this one goes?